Estimates Trending Higher for Machinery-Material Handling

Handling products is not something that normally grabs investor interest, but given some recent data, perhaps it should.

Last week, Columbus McKinnon (CMCO) reported fourth-quarter profits of 57 cents per share, up from an adjusted 52 cents per share last year. CMCO, which makes hoists, cranes, lift tables and other handling systems, experienced both sales growth and margin expansion. The backlog was higher as well. Two of the three covering brokerage analysts have raised their forecasts on the stock, sending the fiscal 2008 consensus estimate five cents higher to $2.09 per share.

This Thursday, after the close, Cascade Corporation (CAE) is scheduled to report its fiscal first-quarter results. CAE matched expectations last quarter, but beat expectations during each of three previous quarters. Brokerage analysts have also been raising their forecasts for fiscal 2008. The current consensus estimate calls for fiscal 2008 profits to total $4.04 per share, a positive revision of 29 cents from 60 days ago. CAE makes load handling products that are used on lift trucks and sales of lift trucks have been strong in both Europe and Asia – a reflection of economic growth.

CAE and CMCO are Zacks #2 Rank stocks. Both companies are classified in Machinery-Material Handling.

This group also contains one more company, Key Technology (KTEC). KTEC is a Zacks #2 Rank stock, but makes automation systems for the food industry. The company might be of interest for two reasons. First, CEO David Camp credited the increased focus on food safety and labor shortages in the food industry for helping his company to increase earnings. Second, the sole brokerage analyst who covers the stock has adjusted his full-year profit forecast by 22 cents over the past 60 days to 90 cents per share.

Cummins (CMI) may seem like an unlikely global-warming play, but the company is experiencing higher demand for what it describes as “emissions-related products and technologies”. Specifically, filtration and exhaust treatment technologies appear to be an area of growth for CMI. On the flip side, new regulations in the U.S. have resulted in a decline in truck sales this year and thereby lower demand for truck engines, which CMI makes. Several trucking companies accelerated their purchase plans last year before the regulations took effect.

Nonetheless, the outlook for CMI appears to be positive. Worldwide economic growth and increased demand for portable generators and auxiliary power units are contributing to the bottom line. CEO Tim Solso expects CMI to earn between $6 and $6.50 per share this year. Brokerage analysts have been raising their forecasts on the stock, with one analyst revising his projections within the last seven days. The consensus earnings estimate of $6.41 per share is 14 cents higher than a month ago and $1.09 higher than 60 days ago.

CMI is a Zacks #1 Rank stock. Because CMI is the lone company in Engines-Internal Combustion, the group’s Industry Rank matches the company’s Zacks Rank. (Industry Rank is calculated by averaging the Zacks Rank for all companies within a group. Groups with a smaller number of companies may have more volatile Industry Ranks and may be more likely to appear near the very top or very bottom of the Industry Rank List.)

The number of estimate revisions dropped significantly last week. Using a four-week rolling period, a total of 5,804 estimates were revised (2,880 positive revisions and 2,924 negative revisions). This compares to 8,793 estimate revisions last week and 13,077 estimate revisions three weeks ago. The drop reflects a move away from the peak of first-quarter earnings season and also the Memorial Day weekend. The revisions ratio did fall below one (.98 positive revisions for every one negative revisions), but this combination reflects both the size of the companies that reported late (more smaller capitalization companies) and just intra-quarter trends. In other words, it is not cause for alarm.

I expect this trend of fewer estimate revisions to continue throughout June. Brokerage analysts have been less likely to adjust their forecasts between earnings seasons. This is a trend that has been amplified during the past two quarters and given the continuing uncertainty about the pace of economic growth, there is little reason not to expect this trend to continue.

What does this mean for the markets? Simply, the lack of positive estimate revisions is one less catalyst to move stocks higher. Not a bearish event, but rather less wood to fuel the bullish fire.

Zacks Premium and ZacksElite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Charles Rotblut, CFA is a senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com

*A small portion of the estimates reflect FY08 earnings estimates for companies whose fiscal years end at a month other than December 2007 or January 2008.

Read the full analyst report on KTEC

Read the full analyst report on CMI

Read the full analyst report on CASC

Read the full analyst report on CMCO